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A
A purchase contract
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B
A contract where one party (the optionee) pays consideration to another (the optionor) for the right (but not obligation) to purchase or lease property at a specified price within a specified time; if the optionee chooses to exercise the option, it becomes a purchase contract
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C
A lease only
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D
A type of mortgage
Why this is the answer
OPTION CONTRACT: a unilateral contract where the optionee pays the optionor for the right (option) to buy or lease the property within a specified time at a specified price. KEY ELEMENTS: (1) OPTION CONSIDERATION — money paid by optionee to optionor; non-refundable typically; usually small compared to purchase price; this is what makes the option enforceable; (2) OPTION PRICE — agreed purchase price if exercised; (3) OPTION PERIOD — specific time during which option can be exercised; (4) EXERCISE — optionee must give notice (often written) within the period and (typically) tender the agreed amount; if not exercised, option expires and the option consideration is forfeited (kept by optionor); (5) WRITTEN — must be in writing under Statute of Frauds. APPLICATIONS: (a) LEASE-OPTION (RENT-TO-OWN) — tenant rents property with option to buy; portion of rent may apply to purchase price; common in some markets; (b) LAND OPTIONS — developer obtains options on multiple parcels for potential development; allows time to design, secure financing, get permits without committing to purchase if project doesn't proceed; (c) COMMERCIAL DEVELOPMENT — large projects with multiple parcels; (d) FILM/TELEVISION — common for property used in productions. WHY USE OPTIONS: (1) BUYER FLEXIBILITY — control of property without commitment; can investigate, secure financing, get approvals; (2) PRICE LOCK — protects buyer from price increases during option period; (3) SELLER COMPENSATION — receives option money even if option not exercised. OPTION vs. PURCHASE CONTRACT differences: (a) OPTION is UNILATERAL — only optionor is obligated (to sell if optionee exercises); optionee can walk away losing only the option consideration; (b) PURCHASE CONTRACT is BILATERAL — both buyer and seller are obligated. CONVERSION: when option is exercised, a binding purchase contract is formed (the option becomes the contract terms). OPTION SHOULD INCLUDE: identification of property, parties, option consideration, exercise terms, exercise period, what happens at exercise, signatures, recording (for protection). STATE-SPECIFIC requirements vary; option contracts may need specific language under state law. The state portion exam may test options as a specific contract type along with leases, purchase contracts, and listings.
Source: Real Estate State Portion, Option Contracts